Investors switching borrowing status: Terry Ryder

Misinformation is the scourge of real estate consumers.

And too much of it comes from people who present themselves in public as experts providing “analysis” when in reality they’re mis-diagnosing situations and adding to the media pipeline of misinformation.

It’s extraordinary how often economists, mortgage brokers, researchers, valuers, Reserve Bank officials and others do that.

This connects to my comments earlier in the week about the way many commentators arrive at their conclusions: if Event A coincides with Event B, then Event A must have caused Event B.

That’s about as sophisticated as real estate analysis gets for most cases. 

Therefore, if low interest rates coincided with Sydney’s boom, then low interest rates are obviously the cause of the Sydney boom. This is accepted as fact by almost everyone out there among the chattering classes with almost-knowledge of real estate.

Question: why have low interest rates not caused equivalent booms in Perth, Canberra, Darwin, Brisbane, Adelaide, Hobart and most of regional Australia?

Many markets have been going backwards, un-stimulated by the level of interest rates.

Here are some other things Sydney’s property boom coincided with: the change in state government in 2011, the subsequent massive rise in infrastructure spending and the surge in the NSW economy to No.1 in the nation. Perhaps those events had something to do with it.

Here’s another thought. The other city market that’s shown some buoyancy in recent years is Melbourne, though not as much as Sydney. Is it not relevant that Victoria’s economy has been the No.2 in the nation, not as strong as NSW but above the national average? Melbourne also has a fairly big infrastructure spend happening, though not as big as Sydney’s.

The relative performances of the property markets in those cities have mirrored the health of their respective state economies and their outlay on new infrastructure, which generates economic activity, jobs and housing demand.

The issue of the week has been housing finance data and how it has been interpreted by commentators with almost-knowledge of property.

Regulatory authorities have introduced “macro prudential measures” to slow down property investor activity. The latest ABS data on housing finance shows a decline in lending to investors.

There’s only one conclusion a reasonable observer could draw from that, right? Clearly the regulatory measures are working. I mean, duh!

Well, that’s what you would say if you’re a business with a lust for limelight and your vision extends no further than the length of your upturned nose.

And multiple commentators rushed out press releases saying just that, including the ever-hungry RateCity which claimed: “Today's sharp drop in investor housing commitments shows that differential pricing is having a dramatic effect on the housing market.”

There were many others expressing similar views. APRA makes announcement, lenders lift interest rates for investors, investors stop taking out loans – simple, obvious and clear-cut.

Except it’s not.

Investors haven’t stopped staking out loans. They’ve switched the status of their borrowing from investor to home-buyer, thereby accessing cheaper rates and easier terms.

The apparent fall in investor borrowing reflects a trend towards reclassifying loans as owner-occupier. Most commentators have missed that. 

“The (APRA) moves are having a dual impact: weakening investor loans but indirectly boosting owner-occupier loans as these become more appealing for both lenders and borrowers that have the option of purchasing as an owner-occupier,” Westpac economist Matthew Hassan says.

And National Australia Bank economist Tapas Strickland says that while there appears to be a decline in investor lending, “caution is warranted”.

A dose of caution generally, before commentators rush to shallow analysis in the pursuit of profile, would be welcome.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.